The arrangement that is set up by a third part wherein goods or money is deposited into and account until a contract is fulfilled legally is called an escrow account. This a service that is provided in order to put financial assets into the hands of a neutral middleman, to keep it in a type of guaranteed savings account, a contract between a seller and a buyer, or the county and a homeowner in the case of property taxes or insurance.
The funds from this account will be used to make payments, or rather will be there for use should the owners not have the financial means to make those payments at any given point. In most cities and towns, including the Texas town of Denton, foreclosure have created the need for these escrow accounts, and are sometimes a necessary requirement for first time home buyers, and this market, many home buyers.
These accounts first gained popularity when homeowners were ill prepared for the property tax time, and ended up losing their homes to foreclosures when after paying the large sums for property taxes, they could not make their mortgage payments. This is much like a force account for savings. The escrow holds the money, until the due date for these payments. Hundreds of dollars are added to one’s mortgage payment each month, and this money goes into the escrow account. The extra money does not apply towards the principle mortgage or to interest payments.
This money that has been set aside is then used to bay the insurance bill or the property taxes which occur twice per year. One of the advantages to this is that the money is there to pay these bills when it is necessary. As for most people it is easier to come up with a few hundred dollars each month, rather than the large sums necessary required at one time. This is similar to a forced budget and is a good option for those who may have trouble doing that on their own.
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